On Tuesday an audit board established by the UN Security Council in March 2003 to monitor oil sales in Iraq under US occupation reported that there had been widespread mismanagement, financial irregularities, smuggling and the use of no-bid contracts.

The panel, the International Advisory and Monitoring Board of the Development Fund for Iraq, found that the occupation regime, headed by L. Paul Bremer III, had failed to install metering to measure how much Iraqi oil was being extracted from the country's fields, awarded contracts to the Texas-based Halliburton Company, formerly headed by Vice President Dick Cheney, and permitted overbilling, rising costs and waste. Kellogg, Brown and Root, a Halliburton subsidiary, is estimated to have charged “unsupported” and “overstated” costs, valued at $812 million, for projects funded by Iraqi oil revenue.

The occupation regime, which handed things over to the interim Iraqi government at the end of June, spent $20 billion from the Development Fund for Iraq but only a tiny fraction of the $18.5 billion of the appropriation for urgent reconstruction voted by the US Congress in November 2003. Congressional oversight procedures would not have permitted the sort of abuses accepted by Bremer and his team.

The UN investigation was issued ahead of US congressional reports on corruption of the UN's oil-for-food programme, which enabled the regime of former president Saddam Hussein to reap payments of more than $10 billion from oil smuggling and kickbacks from companies seeking contracts for oil sales and purchases of food and medical supplies. Conservative US politicians are trying to lay the blame for the well-known manipulation by Iraq of the oil-for-food scheme on UN Secretary General Kofi Annan, in order to deflect international and domestic attention from massive profiteering in Iraq by US companies associated with the Bush administration.

This week's report touches upon a few abuses only. Pratap Chatterjee, managing editor of CorpWatch, a US-based monitoring group, describes the massive ripping off of Iraq and the US taxpayer in his book, “Iraq, Inc. A Profitable Occupation”, published by Seven Stories Press in November 2004.

Chatterjee points out that the Iraqi gold rush began well before the administration launched its war to topple Saddam. For example, in February 2003, Science Applications International Corporation (SAIC), a California “stealth” firm, formed the Iraqi Reconstruction and Development Council (IRDC), a “shadow government in exile of Iraqi Americans who would plan the running of the country” and, once it was occupied, take up jobs in ministries and governorates to ensure that Washington's schemes and projects were implemented.

Favoured firms have received tens of billions of US tax and Iraqi oil dollars for providing services to the US armed forces, protecting Iraqi facilities and personalities, reconstructing Iraq's devastated infrastructure and building democracy. But privatisation has meant profiteering rather than the successful provision of goods and services. The US military still suffers from shortages of essential equipment and supplies, soldiers-of-fortune contracted to assume some tasks which should be carried out by soldiers fail to provide security, Iraq's power, water and sewage installations have not been repaired and no grassroots democratic institutions have been established.

Basing himself on media and official reports and research in Washington, DC and in Iraq itself, Chatterjee shows that US contractors not only operate on a no-bid basis but also in a “costs plus” system. He writes that Halliburton, the main Pentagon contractor, “does not care how much it spends, because under its contracts, the military pays Halliburton for costs plus a small profit margin of one per cent”.

This means Halliburton must earn its take from “costs”, rather than from the severely limited margin of profit. Halliburton has even been caught billing for services not provided. Chatterjee cites a July 2003 case when Halliburton charged for serving 42,042 meals to US troops while actually providing only 14,053.

Halliburton was also caught overcharging the US military by $100 million for petrol.

Another favourite, Bechtel, hired to rebuild Iraq's electricity plants and network, has failed to deliver money, spare parts and machinery, so 20 months into the occupation, some Baghdadis receive electricity on a two-hour-on-four-hours-off basis and others, notably the inhabitants of the largely Sunni district of Adamiya, have none. Contracted also to repair schools, Bechtel handed out the actual task to unsupervised local subcontractors who did the minimum. Although Iraqis suffered power shortages and poor schools, the company's earnings rose from a low of $11.5 billion in 2003 to $16.3 billion in 2004.

The US argues that private security firms can provide certain services more efficiently than soldiers, but Chatterjee shows that this is untrue. Contractors deployed an estimated 40,000 hired guns, some of whom earning as much as $1,000 a day, others take home pay-packets higher than those of regular soldiers. The real problem is that Defence Secretary Donald Rumsfeld decided to occupy Iraq with too few troops to impose security and failed to rebuild the Iraqi army and police. As a result, the US has had to rely on expensive contractors to do jobs troops should have done.

The author also describes how an unknown North Carolina company, Research Triangle Institute International (RTI), was hired to develop democratic institutions in Iraq's towns and cities. He writes: “A Mormon preacher from Utah, a city manager from Houston and a professor of anthropology from New York City were dispatched to Iraq for the grand experiment”. Grassroots Iraqi town councils, set up after the war, were replaced by RTI councils comprising “moderates” and “nonrejectionists” who had no credibility with Iraqis.

During the first year of operations, RTI submitted bills totalling $156 million, but only $15 million, less than 10 per cent, was spent on the ground in Iraq. The company was awarded a second equally lucrative contract.

On Dec. 9, Chatterjee's CorpWatch carried an article by David Phinney on the scandal involving the provision of inadequate, rotten and rancid food to Iraqi prisoners at the notorious Abu Ghraib facility. This food was largely to blame for riots in November 2003 during which four Iraqi detainees were shot.

While the UN report and Chatterjee's illuminating and important book cover Bremer's reign, which formally ended on June 28 of this year, Halliburton, Bechtel and other administration corporate cronies continue to dominate the post-war commercial scene in Iraq, making it obvious that lucrative contracts were one of the reasons for the war.

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